Opinion: As Trump comes in, trade stands at a crossroads

Donald Trump pressured Carrier to abandon plans to move an assembly line to Mexico.

By

BarryWood

WASHINGTON (MarketWatch) — After years of sluggish growth the global economy is expanding at its fastest pace in five years, according to the International Monetary Fund. But IMF chief economist Maurice Obstfeld warns that possible trade disruptions pose a risk to the 3.4% growth forecast for 2017.

From October estimates IMF upgrades US 2017 growth forecast to 2.3%,€Z to 1.6%, UK to 1.5% and China to 6.5%. pic.twitter.com/ZQfrk8FgS9

At a press conference Obstfeld commented on Donald Trump’s tough talk on trade, including a threat to impose a 35% border tax on certain products entering the United States. Obstfeld said he worries about protectionist rhetoric and warned that “in a trade-war scenario all countries lose out.”

A trade war occurs when nations try to protect their economies by putting heavy taxes on imports — prompting their rivals to retaliate with similar measures.

Of particular concern is friction between the United States and China, the world’s two biggest economies. Niall Ferguson, a scholar at Stanford University’s Hoover Institution, said turmoil in U.S.-China trade is the principal risk to the global economy.

Beijing expected that Trump’s criticism of China’s trade and security policies would diminish after the November election, Ferguson said. That didn’t happen, he told me, and in fact Trump toughened his position on Taiwan, challenging the decades-old one-China policy in which Taiwan — despite having its own government — is seen as an integral part of China.

“If U.S.-China relations deteriorate,” said Ferguson, “the economic consequences could be absolutely huge.” Rex Tillerson, the Texas oilman in line to become secretary of state, said last week there are no plans to alter the one-China policy.

Trump likely poses a strategic challenge to China, said former Australian Prime Minister Kevin Rudd and president of the Asia Society Policy Institute. It is essential that bilateral trade disputes be resolved. Prosperity in the Asia-Pacific region, Rudd said, requires a calm cooperative relationship between the United States and China.

In an interview last week with the Wall Street Journal, Trump said he would not act quickly to designate China as a currency manipulator, something he had suggested during the campaign.

Obstfeld at the IMF and other analysts say China is no longer holding down the value of yuan
USDCNH, +0.0724%
to boost exports. In fact over the past year, China has spent as much as $1 trillion to prevent the yuan from falling further against the dollar. The U.S. Treasury has until April 30 to determine whether China is manipulating its currency.

Chinese President Xi Jinping went to the World Economic Forum in Switzerland, making the case that China is a resolute defender of stability, globalization, and free trade, policies championed by the United States for 70 years.

Trump’s insistence on renegotiating trade deals, bringing jobs back to the United States and “making America great again” has unsettled foreign leaders.

Trump opposes the Trans-Pacific Partnership (TPP), the free-trade blueprint advanced by the Obama administration and endorsed by Japan and 11 other Asia-Pacific nations. Trump has said the U.S. will withdraw from TPP; Rudd, a strong advocate of TPP, said the agreement is dead. Critics say U.S. withdrawal opens the way for China to promote its own trade agenda in the region.

In fact, the shape of U.S. trade policy under Trump is unknown. Often contradictory statements have been made and the people nominated for economic-policy positions in his administration provide few clues.

Steven Mnuchin, nominated for Treasury secretary, has made few declarations on trade. Peter Navarro, likely to head a new national trade council, has been critical of China’s trade policies. Robert Lighthizer, chosen to be U.S. trade representative, is a trade lawyer whose views are seen as moderate.

This is a time of uncertainty. Forecasts for a pick up in growth and trade are linked to the kinds of policies to be put in place by the new U.S. administration. And at this moment no one knows what those policies will be.

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